Earnings call transcript: Axfood Q1 2025 sees strong sales, strategic growth

Axfood AB reported its first-quarter 2025 earnings, showcasing a 4% increase in consolidated net sales and significant strategic moves, such as the CityGross acquisition. The company’s stock experienced a 2.3% rise in early trading, reflecting investor confidence in its future prospects and operational efficiency gains. With a market capitalization of $5.5 billion and an "GOOD" Financial Health score according to InvestingPro, Axfood has maintained dividend payments for 24 consecutive years, demonstrating consistent shareholder returns.

Key Takeaways

• Axfood’s Q1 net sales grew by 4%, with an operating profit of SEK 719 million.
• The company is implementing structural measures and store conversions.
• Axfood’s stock rose by 2.3% following the earnings release.
• The company maintains a strong competitive position with its Willys chain.

Company Performance

Axfood’s performance in Q1 2025 was marked by a strategic focus on expanding its footprint and enhancing operational efficiency. The company’s net sales growth of 4% outpaced the food retail market’s average growth of 1.9%, highlighting its strong market position. The acquisition of CityGross and the opening of new stores contributed to this growth. Trading at a P/E ratio of 24.5x and showing a return on equity of 31%, Axfood’s focus on the discount segment aligns with consumer trends, particularly among younger customers and families. According to InvestingPro’s analysis, the company currently appears slightly undervalued based on its Fair Value assessment.

Financial Highlights

• Revenue: SEK 719 million, a 4% increase year-over-year.
• Operating Margin: 3.4%
• Adjusted Operating Profit: SEK 757 million
• Cash Flow from Operating Activities: SEK 463 million
• Total Investments: SEK 373 million

Outlook & Guidance

Axfood considers 2025 a transitional year, with a focus on achieving profitability by the second half of 2026. The company plans to continue its investment in new store establishments and expects efficiency gains of SEK 200-300 million annually from Q2. With analysts forecasting EPS of $1.13 for FY2025 and a 5-year revenue CAGR of 11%, the company shows promising growth potential. The upcoming Capital Markets Day in September will provide further insights into Axfood’s strategic initiatives. For comprehensive analysis of Axfood’s growth prospects and detailed financial metrics, check out the full research report available on InvestingPro.

Executive Commentary

CEO Simon Maglis emphasized the transitional nature of 2025, stating, "We are going for profitability in the second half of twenty twenty six." He also highlighted the importance of building price worthiness at CityGross, which had been lost in previous years. Maglis reiterated the company’s strategy of driving long-term sustainable growth by improving customer loyalty and increasing volumes.

Risks and Challenges

• The integration of CityGross and achieving the expected efficiency gains.
• Potential supply chain disruptions affecting store operations.
• Sustaining competitive pricing amidst rising food price inflation.
• The need to maintain strong brand perception and customer loyalty.

Axfood’s Q1 2025 results indicate a solid foundation for growth, with strategic initiatives and market positioning supporting its long-term objectives. The company’s focus on operational efficiency and expansion in the discount segment positions it well for future profitability.

Full transcript - Axfood AB (AXFO) Q1 2025:

Alex, Conference Moderator, Axford: Good morning, everyone. This is the Axford first quarter twenty twenty five telephone conference. And with me today are Svein Maglis, president and CEO and Anders Lexpond, CFO. In the Investors section of our axford.com website, you will find the presentation material for today’s call. We encourage you to have that presentation at hand as you listen to our prepared commentary.

After the presentation, we will be taking questions and a recording of this call will be made available on our website. I will now hand over to the words to Simon. So please go to page number two.

Simon Maglis, President and CEO, Axford: Thank you, Alex, and good morning, everyone. With a focus on the customer meeting and further volume growth, we continue to strengthen our market position in the first quarter of the year with Willis, Hemp Shop and Snabrios. We reported a stable earnings performance and maintained a high level of activity in areas that are strategically important for increased efficiency and market presence. A number of activities have also been initiated to strengthen Citigos, which we acquired on November. In terms of logistics, the productivity of our recently completed logistics center in Vorlstad is continuing to improve.

And now we have also initiated plans to expand capacity and efficiency in the Southern part of Sweden from 02/1930 and onwards. We will, of course, cover all these areas in today’s presentation, but first, let us turn to Page three and today’s agenda. I will start with a brief market overview, and then I will give you a review of our first quarter performance and strategic agenda. Following that, Anders will take you through the financials. And lastly, just a brief summary from me before we open up for questions.

Turning to Page four, but let’s go straight to Page five and take a look at the developments during the first quarter. Food retail market growth was 1.9% in the first quarter. Growth was impacted by a negative calendar effect of minus 2.3%, given Elite Day last year and also timing of Easter. Following a period of low inflation, Statistics Sweden reported that food price inflation was once again on the rise in the first quarter, reaching an annualized rate of 3.8%. This is due to various global factors, including shortages in the supply of raw materials, climate change and geopolitical turbulence.

Adjusting for calendar effects and inflation, market growth amounted to 0.4%. Growth in Axos retail sales amounted to almost 16%. We clearly gained market share and that was true also if you exclude CityGross as the adjusted growth was 3%, driven by a positive trend in customer traffic and increased volumes. Retail sales growth over a two year period amounted to 24%, almost three times the rate of the market. Also here, our growth, excluding CityGross, exceeded that of the market.

In e commerce, growth amounted to 4.1%, which compared to market growth of 2.2%. Excluding city growth and the discontinued business midas field, our sales were on par with the prior year. We are now on Page six. Growth in consolidated net sales amounted to almost 4% during the first quarter and despite the negative calendar effect. Higher volumes in Willis, Hemp Shop and Snablos was the main driver behind this.

Sales in Citigos amounted to just over SEK2 billion. On a group net sales basis, the contribution from Citigos was SEK290 million or just over one percent due to internal eliminations in Darjab. So please go to the next page, number seven. Group operating profit amounted to SEK719 million and the operating margin was 3.4%. Operating profit includes items affecting comparability of minus million related to city gross.

Adjusted operating profit, which excludes items affecting comparability, amounted to SEK757 million and adjusted operating margin was 3.6%. Operating profit in Wheel and Dog have increased, while profits in Hamschaft and Snabros declined somewhat. Citigross had a weak start of the year, and I’ll get back to this development shortly. The Axewood Group adjusted operating profit excluding Citigroups was higher than in the prior year, and the corresponding operating margin was unchanged. We maintained significant focus on productivity and cost efficiencies.

With our structuring investments in our operations, we have a solid foundation for operational excellence. And during the first quarter, we also initiated work to improve efficiencies in our support functions across the group to further increase our competitiveness. Let’s go into a little bit more detail, starting with on Page eight. As I just mentioned, sales growth for Willis was strong in the first quarter at 3% and clearly above the rate of the market. In addition, Willis is back to earnings growth as operating profit increased compared to the prior year and amounted to SEK $495,000,000, which corresponded to a flat operating margin of 4.3%.

The higher profit was mainly driven by increased volumes, a stable gross margin development and good cost control. Turning to Page nine. Wheeler’s is Sweden’s most recommended grocery chain and holds a unique position of the market. Growth in the first quarter was driven by positive trends in both customer traffic loyalty. In total, the amount of members in Wheeler’s Plus loyalty program increased 5.1% year on year on net basis to more than 3,800,000.

In terms of loyalty, the number of members making a purchase also increased 3.4% year on year, so strong trends in both attracting new members and increasing the number of active members. We also see even stronger brand perception as measured by consumer consideration and preference. We have shown these charts before, but they are worth showing again with updated figures as these metrics really display how strong the Willis brand is among consumers. We are now on Page 10. It is evident that price value and low prices are still very much in focus for our customers.

Just over the last few years, these factors have really become top of mind for people when deciding which store to do their grocery shopping in. Price value even surpassed location as the single most important factor a couple of years ago, a historic change, which is still true today. The discount segment has been the market’s fastest growing segment for a long time. And in terms of the demographic profile of shoppers, there is a clear preference among younger customers and families with children, and we interpret this as a good sign for future growth and potential. In addition, the discount segment is still relatively small in Sweden when compared to markets in many other countries.

So to put this into context for Willys, we see considerable possibilities to continue expanding the chain, adding more stores at a rapid rate. Let’s turn to Page eleven and the Hemp Shop segment. With an attractive offering in the traditional grocery segment of the market, Hemp Shop also performed strongly in the first quarter with a retail sales growth of 3.1% and like for like sales growth were very similar to both numbers clearly above the market, which primarily was driven by increased volumes from a higher number of customer visits. Total net sales for Hemp Chef increased 5.1%. Operating profit amounted to SEK94 million and the operating margin was 4.6%.

The margin was somewhat lower than in the prior year. However, it was still a very good level compared to the recent year. While higher sales volumes had a positive impact on earnings, a somewhat lower gross margin impacted negatively. There were also some effects related to new establishments. Turning to Page 12.

With Citigross, Axel has established a presence in the hypermarkets, an attractive segment that over time has become a larger share of the Swedish food retail market. Citigroup has faced some challenges in the recent years and the trend the first quarter was also weak. On a like for like basis compared to the year earlier when Axel was not the full owner of Citygroves, retail sales were down 3.3%. In total, retail sales decreased 3.8%, mainly due to volume declines and the closure of one store. The adjusted operating profit was negative and amounted to minus million, mainly explained by the weak growth in like for like sales.

Items affecting comparability pertain to structure costs, including costs related to closing the store in Bromme in Stockholm, ahead of concept change to Willis. And the adjusted operating margin was minus 3.9%. We are now on Page 13. As previously communicated, this year will be a transitional year for Citigros, and the initiatives that we are now implementing will take time to yield results. We maintain a high activity level to strengthen the chain by revitalizing the concept and brand, improving the customer offering, implementing a chain management structure and streamlining operations.

A new communications concept and a stronger, more affordable customer offering were recently launched. We are also implementing structural measures, including conversions to the stores in Boiling and Roma to Willis stores. And given our experience, expertise and capacity, we see considerable opportunities to turn Citigloz into a profitable company at some point in the second half of twenty twenty six. Turning to Page fourteen. In the Restaurant and Cafers segment, Snablros continued to deliver strong growth of 5.2% despite the continued weak market.

Sales were up 4.1% on a like for like basis. A higher number of customer visits had a positive impact on sales. Unlike the food retail market, the overall calendar effect did not impact the outcome since the negative effect of the leap day in the preceding year is deemed to have been offset by a positive calendar effect related to Easter. Operating profit was basically in line with the prior year and amounted to SEK25 million corresponding to an operating margin of two percent. While increased sales and stable gross margin trend had a positive effect on earnings, new store establishment and investment in expanding Snabro’s Club negatively impacted the earnings trend.

Moving on to Page 15 on DarGab. DarGab’s net sales increased by 3.5% with sales to Willis, Hampshire and Snabogos driving the increase in the quarter. Operating profit increased to SEK287 million and the operating margin was slightly higher than at 1.5%. The earnings trend was primarily due to the positive sales growth. The gross margin declined slightly, which was partly offset by lower cost as a result of the progress made in the logistics restructuring.

Let’s go to Page 16. During the quarter, the implementation of e commerce flows at the logistics center in Bosta was completed, marking the end of the ramp up for the facility. Productivity and efficiency improved during the quarter, thanks to a focus of optimization. And from the second quarter of twenty twenty five, previously announced efficiency improvements of to SEK300 million on an annual basis are expected to be realized, contributing to a continued cost savings and improving Axos competitiveness. In addition to investments in Borsa, the expansion of the 16 High Bay warehouse in Bakke, Gothenburg and the optimization of the fruit and vegetable warehouse in Ascluna are in their final phases to increase capacity and streamline operations.

We are now on Page 17. In recent years, we have been very strong we have had a very strong growth in Dogger through organic volume developments and expansions, including the acquisition of Baien Dauss Food. With the logistics center in Borsa, we have secured capacity and efficiency to handle volumes in the middle and northern parts of Sweden. Now and naturally, we are planning for the next steps in the development on our logistic structure to create additional capacity and efficiency also in the Southern parts of Sweden and from the year 02/1930 and onwards. The plan is to establish a new automated logistics center in the Gothenburg region, but first and foremost will replace our existing warehouse in Batya.

However, we are also analyzing how to handle volumes among the other warehouses in the Southern Sweden. These initiatives will create a modern and highly efficient infrastructure to secure capacity and growth and contribute to strengthening our competitiveness. While it’s still early days, we will provide more details in the coming quarters and initiate negotiations with relevant parties and stakeholders. Turning to Page 18. Now it’s time for Anders to walk you through the financials development.

So please go to the next page, number 19. And Anders, please go ahead.

Anders Lexpond, CFO, Axford: Thank you, Simon. So we are now on Page 19. In the first quarter, cash flow from operating activities was $463,000,000, lower compared to the prior year. The relatively weak cash flow from operating activities compared to last year was mainly due to a strong working capital performance last year, which was boosted by accounts payable related to Easter. The cash flow from investment activities was minus 400,000,000, slightly lower compared to last year.

We saw lower pace in warehouse investments, but a higher pace in store modernizations. The cash flow from financing activities was in line with last year. The higher dividend and amortization of leasehold debt was offset by higher usage of credit facilities. So then please turn to Page number 20. The net debt has increased during the last two quarters due to the acquisition of Setekros.

In addition to the loans raised for the acquisition, net debt also increased with the Setekros leasehold debt of approximately SEK 2,000,000,000 and the dividend paid out in Q1. This is also reflected in the higher net debt ratio. At the end of the first quarter, we utilized approximately SEK 3,300,000,000.0 of our credit facilities, approximately SEK 2,500,000,000.0 more than in the first quarter last year and SEK 400,000,000 more than in Q4. The equity ratio was lower than December 2024 and amounted to 16.8%. The lower equity ratio compared to Q1 last year was a result of the Citiglas acquisition.

The decrease in the first quarter was in line with previous years and is also seasonal effect from dividend paid. The total investments, excluding leasehold and acquisition, for the first quarter amounted to $373,000,000. During the first quarter, we established two new Groupon stores. In Q1 last year, we didn’t establish any stores. So then please turn to Page 21.

Looking at capital efficiency, we had a negative development of the rolling twelve month net working capital. The impact of the Citigos acquisition is expected to increase the KPI with approximately 0.3 percentage points on a rolling twelve month basis. We also saw a negative effect from the last year all time high accounts payable balance in March. Capital employed has increased over the last years, mainly due to both the acquisition of Behrendoz Food and Citigros as well as the investments in Ballstar. The level of capital employed, however, decreased in Q1, mainly as a result of the dividend.

Due to the decrease in capital employed, the return on capital employed increased somewhat to 16.8% compared to last year. And thereby, Simon, I am done with my part, so I hand over to you again.

Simon Maglis, President and CEO, Axford: Thank you, Anders. We are now on Page 22, but let us go straight to Page 23. Our outlook for the year is unchanged, and it covers investments, new store establishments and items affecting comparability. With regards to new establishments, we opened up two new group owned stores in the quarter, of which one Wheelers and one Wheelers Hemma. So please now turn to Page 24.

Every other year, Axel holds a Capital Markets Day to provide more information about the group’s operation and development. And this year, it’s time again, so I encourage you to mark September 18 in your calendars. We will, of course, cover many areas at the event, areas that are important for our group to drive profitable and sustainable growth over a long term. More details around the CMD will follow in due time. We are now on Page 25 and the last page of today’s presentation.

We summarized the quarter in which we increased market shares and strengthened market positions with a continued positive volume development from strong customer traffic and loyalty. We maintain a high activity level to strengthen Citigroup’s competitiveness and in logistics, we finalized the ramp up of Ballista, as well as initiated plans for new steps in the development of the logistic structure. We see major opportunities ahead to further challenge and benefit from our long term initiatives. Now please turn to Page 26, and I hand over to the operator to open up for the line for questions. Thank

Operator: The next question comes from Magnus Raman from Kepler Cheuvreux. Please go ahead.

Magnus Raman, Analyst, Kepler Cheuvreux: Good morning. Yes, it’s Magnus Roman here. I’d like to first start to Hi, good morning. I’d like to ask about the annual efficiencies. You mentioned here that you expect to achieve these 200 to €300,000,000 annual efficiencies starting already now from Q2 this year.

However, if I got it right, the parallel warehousing costs will continue to some extent on through to H1 twenty twenty six. So could you confirm if that’s correct? And then I guess that we will see some additional boost to savings from H1 twenty twenty six?

Simon Maglis, President and CEO, Axford: The warehouse that we will keep to 2026 is Kolefjian Sarta. These are really small warehouses, to be honest. The large warehouse that we had was Jogru, of course, which was the main part. And then we have also closed now Wostow, which is comparable, pretty small also, but that’s where we had our e com that we have now moved to Wasta. So that’s actually why we also say the two hundred to three hundred million will be realized from the second quarter going onwards.

And both Sattra and Kolafety are really smart handling some volumes for the convenience market. So they will be moved to Orbro. That will be positive, but I mean it’s not material though.

Magnus Raman, Analyst, Kepler Cheuvreux: Right. So in the range of zero to 50 or something like that, would that be a fair assumption?

Simon Maglis, President and CEO, Axford: Sorry, could you take the question? I didn’t really

Magnus Raman, Analyst, Kepler Cheuvreux: Yes, yes. A range of 0 to 50,000,000 savings when those smaller warehouses will eventually be finally closed? Is that would that be a fair assumption?

Simon Maglis, President and CEO, Axford: I wouldn’t give any, how is it, forecast on that because it’s really not material. It’s stick we stick to the 200 to $300 That’s a range that will cover that also.

Magnus Raman, Analyst, Kepler Cheuvreux: Sure. Fair enough. Then on $50,000,000 I guess it’s apparent that the path to profitability here goes to improving the like for like sales. And when thinking about that and trying to sort of figure out the trajectory here in terms of margins towards your breakeven point that you see in the second half of twenty twenty six. Should we expect that you would sort of push price promotional investments and so on in near term quarters to improve like for like sales to track traffic and so on, so that a dip and then later a clear rise in margin towards breakeven is a more likely path?

Or do you rather see it would be a gradual sort of improvement along the way?

Simon Maglis, President and CEO, Axford: We have, Jose, an extensive program going on for SafetyGrowth, covering operational efficiencies, new brand promise, new, I would say, concept, customer offering, where we’ll also improve the price worthiness in CityGross. And all these initiatives are going in parallel. And that’s also that’s we also earlier communicate that 2025 will be a year a transitional year. And so I would say like 2025 will be a transitional year that we have earlier communicated. And then we’re going for profitability the second half of twenty twenty six.

Magnus Raman, Analyst, Kepler Cheuvreux: Right. So you wouldn’t care to comment about the sort of the loss in Q1 if that’s sort of a low point or if

Simon Maglis, President and CEO, Axford: you I can communicate. The $80,000,000 is in line with last year. So it’s the last year, we were not fully owner of Citigroup, but it’s actually in line with last year.

Magnus Raman, Analyst, Kepler Cheuvreux: Right, right. Okay. And then final one maybe on the you mentioned here how the food price inflation has been ticking up now in the recent two months after having been quite stable for twelve preceding months or so, 2% or lower percent. Now looking ahead, do you see that the stronger Swedish krona could sort of alleviate this food price inflation and possibly help with the product margin recovery in Swedish grocery retail? Or how do you view it?

Simon Maglis, President and CEO, Axford: There’s a really wide range of things that are affecting the prices in the market. As you said, the the Swedish krona is is a positive thing. But however, we also have a turbulent geopolitical environment going the last years, and it’s it’s not we we don’t see any measures of of going in a more positive direction. We have also the climate changes. We’re also depending a lot I don’t know if you noticed, it’s pretty dry out there, and that will affect the prices also.

So as you say, the currency is a positive thing for us, talking regarding prices. However, there are so many different things that are affecting the price development. So I couldn’t give you an actual forecast going forward.

Magnus Raman, Analyst, Kepler Cheuvreux: Sure. Just have one for maybe for Anders or I don’t know also about the new DC here. Firstly, I can ask just is the aim for open operation in 2,030? And then when we think about the CapEx profile here, do you think that sort of the CapEx for Balsa would be a good rough indicator? Or do you see that this site would be clearly smaller or clearly different somehow?

Anders Lexpond, CFO, Axford: Magnus, that is things that we have to come back to when we have clear plans on that. And like Simon said earlier, now we have communicated that we’re looking into it, and we have to we will come back to that when we are more clear on that the figures related to CapEx, among other things.

Magnus Raman, Analyst, Kepler Cheuvreux: Sure. Just overall basis, if South and Sweden, should we deemed that to be sort of roughly half of your national volumes? Or is it a material difference?

Anders Lexpond, CFO, Axford: No, it’s a fair assumption, I would say.

Magnus Raman, Analyst, Kepler Cheuvreux: Okay. Okay. Thank you very much.

Simon Maglis, President and CEO, Axford: Thank you very much.

Anders Lexpond, CFO, Axford: Thank you, Magnus.

Operator: The next question comes from Fredrik Iverson from ABG. Please go ahead.

Fredrik Iverson, Analyst, ABG: Thank you. Good morning, guys. Good morning. Three questions. First, you mentioned the negative effect of Easter being late this year a couple of times in the presentation.

Just curious to hear whether you might have any assessment of the earnings impact of this in Q1?

Simon Maglis, President and CEO, Axford: Yes. As you said, Easter we have calendar effect due to Easter and also the leap day, and Easter is coming, as you all know, in April. And as you say, the the calendar effect, of course, we have them on top line, but also on the bottom line. So So you could we also see effects of the calendar effect in the EBIT.

Fredrik Iverson, Analyst, ABG: And do you have any rough assessment of that earnings impact?

Simon Maglis, President and CEO, Axford: I think they correlate, as you say. They are connected to each other, as you know.

Fredrik Iverson, Analyst, ABG: Okay. Fair. Second one on Vilis. The margin here was stable year on year, and you call out a stable gross margin in the report as well. And then six months ago, we remember the margin in Vilis being down one percentage point, and that was obviously due to those price investments you made back then.

So what have you done to sort of restore the gross margin in Vilis? Because I guess the price levels obviously aren’t down currently.

Simon Maglis, President and CEO, Axford: First of all, as we communicated last quarter and the quarter before that, the way we look upon on how to create a long term sustainable profitability and growth is by driving customer traffic, loyalty and also volumes. And that is actually what you see in Ville is. We have a good growth for customers. We have a good increase in loyalty and also good volume increases. But then also there are, of course, many other factors that are impacting the gross margin, such as the customer mix, the campaign mix, the sales mix.

So it’s there are many factors that are impacting the gross margin and also the what you do a comparison. But of course, Wheelis have a strong momentum. And as we talked to you last quarters, for us, we will never go up the price promise in Willis as Sweden’s cheapest grocery bag of groceries, sorry. And that’s really key in the market position and the customer promise that we have in Willis. And that’s how we also create long term profitability to have to be correct in the price position, drive volumes and customers to our stores.

Fredrik Iverson, Analyst, ABG: Okay. Thanks. That’s clear. And last one from my side. You say that you expect the efficiency gains of 200 to 300 in Bosta to run through from Q2.

Do you have a sort of approximate run rate number as of Q1? So where were you this quarter you report?

Simon Maglis, President and CEO, Axford: Do you mean run rate in the efficiency gains, mean?

Gustav Hajes, Analyst, SEB: Yes.

Simon Maglis, President and CEO, Axford: Yes, yes. We see a gradual improvement in BOSTON. And you see also the development in Darga, mean, that’s due to both the good growth in Darga, but also increased productivity. So we will gradually see the improvements. In the Q1, we still have some extra costs due to the e com implementation in Volsta.

So that we are now, how is it, optimizing and that’s why we also feel pretty sure about the efficiency gains going on forward. So you see both profitability improvements in Draghev for the first quarter, but there also we have some extra costs due to e com up ramp. Yeah.

Fredrik Iverson, Analyst, ABG: Okay. So it sounds like the sort of sequential improvements will be fairly significant in Q2.

Simon Maglis, President and CEO, Axford: Yes. Okay. Great. Would explain I would say, we see the operating I would say, the operating from the store logistics, see very good improvements, and we will continue to see gradual improvements also in that part. And then we have some extra costs due to the e com up ramp during the first quarter.

Fredrik Iverson, Analyst, ABG: Yep. That’s very clear. Thanks so much. That’s all my questions.

Simon Maglis, President and CEO, Axford: Thank you.

Operator: Next question comes from Daniel Schmidt from Danske. Please go ahead.

Daniel Schmidt, Analyst, Danske: Yes. Good morning, Smone and Anders. Good morning. A couple of questions for me. Just coming back to the stability of the gross margin in Vilas in the quarter, which you referred to also a couple of quarters ago, you started to be more aggressive on price investments and that hit the profitability.

Now you see stability in the gross margin. At the same time, you’re also writing that DarGab’s gross margin is slightly down. Is there any change to sort of the purchasing costs between Viles and DarGab Is that affecting sort of the gross margin of Vilas in any way or hurting the DarGab gross margin? Or is that due to other factors?

Simon Maglis, President and CEO, Axford: Yes. We have fixed business models. We do not change like quarterly like that. So what you see in the dollar gap is also an effect of product mix that could that affects the dollar gap margin. So that could also vary quarter by quarter depending on seasonal effects.

Now we have had Easter that’s affecting the product mix, etcetera. So the margin in the Argab could differ because of the product mix that they have and what they’re selling.

Daniel Schmidt, Analyst, Danske: Yes. You said we had Easter. We didn’t have Easter, you mean. That usually for profitability? Isn’t Easter, from a gross margin perspective, negative?

Although it’s good for sales, of course?

Simon Maglis, President and CEO, Axford: It’s as margin always. It depends on the campaigns. It depends on the product mix. It also depends on weather, actually. So it’s a mixture between and also it depends on actually the calendar effect.

It could also make impact on the margins if we have nice weather or not or if it’s in April or March. So it’s not like it looks, I say, the same all year.

Daniel Schmidt, Analyst, Danske: No. Okay. And then just maybe a follow-up on CityGross. And you’re saying that you’re introducing a more affordable customer offering from the April. Do you expect that to initially have a negative effect on profitability until you get sort of the gradual change of perception?

Or is that not a meaningful impact? How big is that investment simply?

Simon Maglis, President and CEO, Axford: We are doing as we said, we have an intense program in Citiglas working with different stream parallel, both the customer offering, the campaigns, the price work, the brand. And all in all, we they are to secure a good and I would say profitable core in Growth over time, as we told by the second half of twenty twenty six. And for that, to do investing in the price worthiness, I would say, in 60 gross, it’s really important to be able to attract and create attractive customer offering.

Daniel Schmidt, Analyst, Danske: And do you have any sort of plan or sense of how long that investment needs to be before you start to see sort of a positive impact on demand?

Simon Maglis, President and CEO, Axford: It’s always about both strategic and tactical, how we will carry out those investments. They have different purposes, both driving traffic, but also driving volumes. So that will depend. And we will as we told before, 2025 would be a transitional year, and we are going for profitability in the second half of twenty twenty.

Daniel Schmidt, Analyst, Danske: Yes. And maybe just a last question. You are streamlining support functions. I think you mentioned cutting 60 people. Can you say when and how much this will affect the cost base?

And what sort of in terms of the cost out, of course, maybe for several packages, but also savings long term?

Simon Maglis, President and CEO, Axford: It’s too early actually to say anything about that. We today, we have made the notes of terminations, and we are at this time negotiating the new organizational structure with the unions. So we will have to come back to that when we know.

Daniel Schmidt, Analyst, Danske: But you think this will be clarified before the summer?

Simon Maglis, President and CEO, Axford: It’s too early actually to say that. But the the I would say that the aim of what we’re doing this is to actually accelerate the actual model where we have different formats and brands meeting the customer and working in the back ends to be as efficient as possible to create synergies. Here, we see potential to strengthen how we collaborate both within and between our different companies in the group to increase the productivity, but also to get improve our customer meeting actually.

Daniel Schmidt, Analyst, Danske: Okay. Just a follow-up on that. Is this aimed more towards Citigroup’s organization? Or is it across the board?

Simon Maglis, President and CEO, Axford: It’s across the company across the entire group. Okay. It’s Okay. Thank we’re looking into the function HR, economy, communications, sustainability across all our businesses.

Daniel Schmidt, Analyst, Danske: Okay. Thank you.

Simon Maglis, President and CEO, Axford: Thank you very much.

Operator: The next question comes from Gustav Hajes from SEB. Please go ahead.

Gustav Hajes, Analyst, SEB: Thank you. Some follow ups. Good morning. Just could you just so that I got it right, is it correct that there’s no correlation between the stabilization of gross margin in Willy’s and the lower gross margin in Dalgab that we’re seeing?

Simon Maglis, President and CEO, Axford: Yes. I could, Jose. No, there is no correlation.

Gustav Hajes, Analyst, SEB: Okay, okay. Thanks. That’s clear. And then when you think I understand that there’s a lot of moving parts in your idea how to turn around the sticky loss. But just well, before that, 80,000,000 losses now in Q1.

Is it still your view that you’re more in a run rate of €200,000,000 losses for the year rather than what extrapolated number would be closer to 300,000,000 for the future?

Simon Maglis, President and CEO, Axford: No, no, no. Exactly as you said, euros 80,000,000 is in line with last year’s first quarter. And then you should also know that last year, we had Easter. And the hypermarket segments are a little bit more affected by the Easter than we are traditionally used in the discounter and the traditional food market. So last year, they had the same profitability.

The $80,000,000 are in line with that. And then we have and this year, have a calendar effect on top of that. So now we don’t see any 300,000,000

Gustav Hajes, Analyst, SEB: Could it even be so that you break closer to breaking even then, if Citigossi, Q2 to get the bridge together to like

Simon Maglis, President and CEO, Axford: SEK200 million for the year? As I said, 2025 would be a transitional year, and we are going on the second half of twenty twenty six to reach profitability. I mean, for us, it’s now it’s all about creating a really strong core, create an attractive and a modern store concept to take up the competition in the hypermarket segments with Ike Maxi and Stora Koop. And we are building this from on a very on a strong basis and a platform to then grow from.

Gustav Hajes, Analyst, SEB: Sure. And then but could you please help us a bit on more granular in terms of the what the split is to reach breakeven for Citigroup? So I understand you will not give me all the numbers, but let’s say that store closures is one part, right? And then is there also one part that stems from more competitive procurement prices from Dogab that is part of this SEK 200,000,000 bridge to reach breakeven? And how much is actually through organic contribution to the earnings in that bridge?

Simon Maglis, President and CEO, Axford: The majority for us now is to get growth in the like for like sales. Without growth in like for like sales, we will never be able to do this journey that we’re on. So our focus is to create like for like sales and also focus on the cost. And that is why the implementation of chain operational model in CityGrowth is really important to get really operational excellence in the operations. So strong focus on costs and also creating a really attractive customer offering and customer meeting that will create the like for like growth.

And then Dogab’s role is always to create and support all the brands in the best ways in their negotiations and the yeah, both in having an attractive assortment, but also right prices from our suppliers. And that’s that’s that’s that’s that’s for all all our formats and customers.

Gustav Hajes, Analyst, SEB: Sure. But now that Citigoss is a part of your fully owned format, they will more likely be able to have a better negotiation point with Dogger than before. Is that how you should interpret

Simon Maglis, President and CEO, Axford: You know, we’re not negotiating between our formats and DogApp. We are, as you said, we’re integrated. And DogApp’s role and purpose is to create a really efficient and attractive customer offering for all our chains, no matter if it’s Willis, Hemp Shop, City Girls or our external customers.

Gustav Hajes, Analyst, SEB: Okay. Yeah. All right. Thank you.

Simon Maglis, President and CEO, Axford: Thank you.

Operator: The next question comes from Rob Joyce from BNP Paribas, Exane.

Rob Joyce, Analyst, BNP Paribas Exane: Good morning. First one, just sorry if I missed it, but would you just to help me understand, what’s the difference we’re seeing at Willy’s this quarter versus the third quarter of last year in terms of that margin performance?

Simon Maglis, President and CEO, Axford: Yeah. It it it comes back to having a good like for like growth, but also as we say how to optimize, how is it sales mix, campaign mix, price mix, good cost control, good operational excellence. But the major part is actually, as we said, we create long term sustainable growth and profitability by driving customers to our stores, improving loyalty and also drive volumes.

Rob Joyce, Analyst, BNP Paribas Exane: Okay. Was that very different in 3Q last year? I guess I’m trying to work out what to think about for the rest of this year and going forward. Is this year now a year of margin improvement at Willy’s given the easier comp? Is there something specific in this quarter we need to think about that won’t be repeated in coming quarters?

Simon Maglis, President and CEO, Axford: On one hand, we don’t give any forecast on our margin or growth. But on the other hand, the last quarter last year, we also communicated that it was lower than than we are used to.

Rob Joyce, Analyst, BNP Paribas Exane: Okay. Okay. So we think of last year as more anomalous than initially

Simon Maglis, President and CEO, Axford: For us, as we communicated last quarter, it’s always about driving long term growth and profitability. And if that means that we, like the third quarter last year, had to invest in one quarter in price, then to secure the price position, that will always be key for us to keep our promise to our customers.

Rob Joyce, Analyst, BNP Paribas Exane: Okay. So would you say competition is a little has got easier in the first quarter of this year? Has it eased off on a relative basis?

Simon Maglis, President and CEO, Axford: No. We still have a really high competition in our market. As you said, depends on market dynamics, but we still have a really high competition in the market during the first quarter from all our competitors, I would say.

Rob Joyce, Analyst, BNP Paribas Exane: Okay, understood. And then just on Citigroup. Just a few questions you can help me understand. Two quick ones. Firstly, sorry if I missed it, but what you referenced the first quarter losses last year.

What were total losses at Citigroup last year, please?

Simon Maglis, President and CEO, Axford: It it was in line with this year.

Rob Joyce, Analyst, BNP Paribas Exane: For the full year? Not for the full year 2020.

Simon Maglis, President and CEO, Axford: Full year. Full year. Sorry. February. Around around February.

Perfect. Minus.

Rob Joyce, Analyst, BNP Paribas Exane: And historically, where is City Goes? What’s this kind of high level of profitability? What was it what was it making in its sort of heyday or last five year peak?

Simon Maglis, President and CEO, Axford: Around 2%.

Rob Joyce, Analyst, BNP Paribas Exane: Two %. Okay. And final one, just in terms of the price cuts you’re doing, what do you think that will improve the average basket buy?

Simon Maglis, President and CEO, Axford: For us, it’s important to have a good price to be price valuable in €60 and we create that, of course, with prices. But it’s also about having attractive campaigns and store formats and also sales optimizations. So for us, it’s key to build a price worthiness now in CityGross that actually was a little bit lost during the last years. And we have to come back to that to be an attractive hypermarket actor. We have to have a good price perception of price value.

Rob Joyce, Analyst, BNP Paribas Exane: Okay. So what are you looking to improve that by? Just roughly to give an idea of the sort of movement in that metric you’re looking for.

Simon Maglis, President and CEO, Axford: So sorry. Could you repeat that? I didn’t hear. Sorry.

Rob Joyce, Analyst, BNP Paribas Exane: I don’t I was gonna say, is there is there a level we can think about how much you’re looking to improve that by?

Simon Maglis, President and CEO, Axford: You mean the the buy from the customers?

Rob Joyce, Analyst, BNP Paribas Exane: The price value if there’s an index we should

Simon Maglis, President and CEO, Axford: be thinking about. Yeah. But that’s that’s an important thing. I mean, to bring back the customers and drive loyalty and volumes, it’s important to drive the life growth. And this is key to be able to start to grow like for like, to win back the customers and create a strong loyalty.

So it’s key for us to strengthen the price perception in City Glass.

Rob Joyce, Analyst, BNP Paribas Exane: Okay. All right. Thank you.

Simon Maglis, President and CEO, Axford: And I mean, we had we talked during the autumn when we decided to invest also and to secure the price position in Vilis, we explained that this is really key. And we’ve seen actors both in Sweden and in other markets that lost their price position and how that has become an expensive and long term way back. And that’s actually what we are seeing here now in Citroen. So we have to gain back our customers. And by that price worthiness is really important.

And that’s also why we’re focusing on operational excellence in the store and cutting costs, we can invest in our customer meeting instead.

Rob Joyce, Analyst, BNP Paribas Exane: Thank you very much.

Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Simon Maglis, President and CEO, Axford: So thank you very much for joining us today. I look forward to meet you next quarter, but also on the Irish Capital Market Day in September. So have a nice day.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.